Friday, May 11, 2012

Modest Revenue Increases Continue Through Spring

The American Institute Architects’ Architecture Billings Index showed modest growth again in March, the fifth consecutive month of gains. With billings steadily increasing, and growth seen across most of the country, this month’s ABI offers more good news after the inconsistent year seen in 2011.

The Architecture Billings Index (ABI) serves as the leading economic indicator of construction activity, and reflects the approximate 9-12 month lag time between architecture billings, and actual construction spending. The monthly ABI scores are centered around 50, with scores above 50 indicating an aggregate increase in billings, and scores below 50 indicating a decline.

The ABI registered a score of 50.4 in March; once again a modest gain over February’s values. Job inquires once again saw steady gain for the month, with the sixth consecutive month with a score above 55. Again, all regions except the west saw business improve, and firms in most areas of specialization saw growth. 

Firms with a residential specialization, as well as those with a commercial/industrial specialization, both reported increasing revenue for the seventh month in a row. Firms with a commercial/industrial specialization have reported growth in 16 out of the last 21 months, a positive sign that the expansion is well established in that sector. However, business conditions remain weak for firms with an institutional specialization, despite two months of minimal growth in late 2011 and early 2012.

Economy rising, employment still lagging

In another positive sign, more work appears to be on the horizon. Architecture firms have reported growth in the value of new design/design-build contracts for the last three months. Although this measure is not seasonally adjusted, and may be partially due to the impact of a warmer-than-average winter across much of the country, it should still be taken as an encouraging sign. The AIA’s quarterly measurements of firm backlogs reveal an average length of 4.6 months, the highest they have been since September 2008.

Residential real estate activity improved in all districts of the country, with the exception of the Cleveland and San Francisco districts. Multifamily housing unit construction increased across the board. In addition, nonresidential construction activity increased in the Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and St. Louis districts, and healthcare construction expanded in the Cleveland and Chicago districts. 

Employment data from the Bureau of Labor Statistics was more sobering, with non-farm payroll employment adding just 120,000 new jobs in March, half the number that had been added in each of the three prior months. One factor leading to lower numbers was a sharp decline in retail employment. Construction employment was essentially flat for the month, adding just 7,000 jobs, but the architectural services sector grew to 153,200 in February (the most recent data available) with the addition of 1,200 jobs from January. However, since this data is not seasonally adjusted, that growth may be partially due to seasonal hiring for the spring.


By region, the ABI breaks down as follows from January to February: Midwest is down 54.1 from 56.0, South is down 50.1 from 51.3, Northeast is up 53.9 from 51.0, and West is up 46.6 from 45.6.

By market sector: Residential is down 51.9 from 53.3, Institutional is down 47.9 from 50.3 and Commercial/Industrial is up 56.0 from 55.1.

This month, Work-on-the-Boards participants are saying: 

• [We’re] currently seeing a surge in work. However, there do not appear to be as many projects to chase later in the year.
—Six-person firm in the South, institutional specialization

• For the first time in four years there is a definite increase in contracted workload, and the feeling that this could continue.
—Eight-person firm in the Northeast, commercial/industrial specialization

• One hundred percent of our projects are now remodels—no new construction.
—Two-person firm in the West, residential specialization

• There is a definite increase in activity. Developer work is clearly speculative, but plentiful. Things are improving.
—Three-person firm in the South, residential specialization

 Click here to read more from the AIA.


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